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2021 (2) TMI 1285 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - privity of contract or not - HELD THAT - There are sufficient merit in the claims made by and on behalf of the alleged Corporate Debtor as these letters merely state that the payment due to the work done by the main contractor i.e., M/s FCIPL through the Operational Creditor would be made directly to the Operational Creditor. This is the real substance of these two letters. Further, this also requires various formalities to be completed before such payment could be released. It is also found that the direct payments were to be made for the works to be executed w.e.f. 10.09.2014 only and this arrangement has been made to complete the balance pending work. The main contractor has not raised the bills for the alleged outstanding amount as well as retention money nor any claim till then had been filed before the RP of FCIPL who was undergoing CIRP. Also the reply to notice of demand issued under Section 8 of IBC, 2016, alleged Corporate Debtor has clarified its stand and opposed the demand so raised. In the absence of privity of contract and non- compliances of the submission of invoices/bills by the main contractor along with necessary back up documents required as per the contractual provisions, the said letters of assurance do not result into a cause of action against the alleged Corporate Debtor - the Corporate Debtor is Public Sector Undertaking (PSU), hence, instead of pursuing its claim with the main contractor, the Operational Creditor has chosen to file this application. Petition dismissed.
Issues:
1. Privity of contract between Operational Creditor and Corporate Debtor. 2. Validity of letters of assurance as a contract. 3. Compliance with contractual provisions for payment. 4. Liability of Corporate Debtor in absence of privity of contract. 5. Abuse of process of law and imposition of costs. Analysis: Issue 1: Privity of contract between Operational Creditor and Corporate Debtor The Operational Creditor filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC) against the Corporate Debtor for initiation of Corporate Insolvency Resolution Process (CIRP) due to default in payment. The Operational Creditor claimed to have rendered services to the Corporate Debtor based on work orders from a main contractor, Fernas Construction India Pvt. Ltd. (FCIPL). The Corporate Debtor argued that there was no privity of contract between them and the Operational Creditor, as the latter was a sub-contractor engaged by FCIPL. The Tribunal examined the contractual clauses and letters of assurance provided by the Corporate Debtor to determine the existence of privity of contract. Issue 2: Validity of letters of assurance as a contract The Operational Creditor relied on two letters of assurance issued by the Corporate Debtor, stating that payments for work done by the Operational Creditor would be made directly by the Corporate Debtor. The Tribunal analyzed the contents of these letters and concluded that they did not establish a direct contract between the Corporate Debtor and the Operational Creditor. The letters outlined specific conditions and formalities for payment, including certification of invoices by the main contractor and Project Manager of Engineers India Ltd. The Tribunal found that the letters did not create a direct liability on the Corporate Debtor. Issue 3: Compliance with contractual provisions for payment The Tribunal noted that the direct payments mentioned in the letters of assurance were conditional upon the completion of pending work and submission of certified invoices. It was observed that the main contractor had not raised bills for the outstanding amount or retention money, and no claims had been filed before the Resolution Professional of FCIPL. The Tribunal emphasized the importance of complying with contractual provisions for payment and found that the Operational Creditor had not fulfilled the necessary requirements for invoking liability against the Corporate Debtor. Issue 4: Liability of Corporate Debtor in absence of privity of contract Based on the analysis of the contractual documents and correspondence between the parties, the Tribunal concluded that the absence of privity of contract and non-compliance with contractual provisions prevented the Operational Creditor from establishing a cause of action against the Corporate Debtor. Despite being a Public Sector Undertaking (PSU), the Corporate Debtor was not held liable due to the lack of direct contractual relationship with the Operational Creditor. The Tribunal refrained from imposing costs on the Operational Creditor, considering the correspondence between the parties. Issue 5: Abuse of process of law and imposition of costs The Tribunal addressed the issue of potential abuse of the legal process by the Operational Creditor in filing the application against the Corporate Debtor without establishing a clear contractual relationship. While the Tribunal acknowledged the lack of privity of contract and non-compliance with contractual provisions, it refrained from imposing costs on the Operational Creditor due to the benefit of doubt provided based on the correspondence between the parties. The application was ultimately dismissed and the matter disposed of accordingly. In conclusion, the Tribunal dismissed the application against the Corporate Debtor, emphasizing the importance of privity of contract, compliance with contractual provisions, and the need for clear documentation to establish liability in insolvency proceedings.
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